Jones Lang Lasalle

Office rents to drop as firms turn cautious

PUBLISHED : Wednesday, 13 December, 2006, 12:00am
UPDATED : Wednesday, 13 December, 2006, 12:00am

Office rents in Hong Kong will start to edge down towards the second half of next year as companies grow cautious about expansion, according to property consultant Jones Lang LaSalle.

In its annual property review, it said net office take-up dropped to one million square feet from last year's 2.2 million square feet and stood below the 10-year historic average of 2.3 million square feet.

The slowdown was against the backdrop of higher rentals, lower profit margins and slowing economic growth.

'Corporations are more cautious with expansion plans amid a more competitive environment and pressure from compressing profit margins,' said Macros Chan, associate research director of Jones Lang LaSalle.

But the lower net take-up was also attributed to a low vacancy environment and fewer lease expiries during the year.

'In 2006, Grade A office rents led the rental growth. While rents will continue to rise in the months ahead, landlords generally will feel mounting pressure from tenants next year,' said Mr Chan. 'However, we do not expect to see major rental corrections next year, only that rents will hit the peak very soon and start to edge down, particularly towards the second half of 2007.'

Central remains the most popular office location, underpinned largely by strong demand from finance, insurance, real estate and business services sector tenants, according to the property consultant.

In the next two years, 6.4 million square feet net of new office supply is scheduled for completion - none of it in core areas, however.

The office investment market has been very active with an abundance of foreign real estate fund acquisitions and disposal of non-core assets by banks.

Institutional investments of HK$100 million and more showed a 24 per cent rise, underlining the growing importance of institutional players in the Hong Kong market, according to Jones Lang LaSalle.

'We expect these international funds will continue to look for investment opportunities in Hong Kong and as a base for identifying investment opportunities in China,' said Mr Chan.